Business Taxes Law Guide – Revision 2017

Sales And Use Tax Court Decisions

Paine v. State Board of Equalization . . . (1982)

Board's Use of Audit Test Upheld

Taxpayer, an operator of a retail grain and feed store, sold hay, grain, pet food, and related products. An exemption certificate pursuant to Revenue and Taxation Code Section 6358 was obtained and kept on file from each customer who purported to purchase tax-exempt feed. Following an audit during which taxpayer claimed 80 percent of its sales consisted of exempt feed, the Board conducted a field test and determined that approximately 53 percent of sales were to customers who claimed exemption.

The court of appeal affirmed the trial court's admission of the test amounts. The court held that although taxpayer kept an exemption certificate on file from each customer who purported to purchase tax exempt feed, taxpayer failed to meet the burden of proving that 80 percent of the sales were exempt because there were no records correlating sales invoices to the exemption certificates. The court also held that the trial court properly admitted the results of the Board's test, where substantial evidence supported the trial court's findings that sales during the test period were representative of those during the audit period, and that the condition and conduct of taxpayer's business remained substantially similar during both periods. Paine v. State Board of Equalization (1982) 137 Cal.App.3d 438.

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